Answer to Question #153346 in Macroeconomics for l11

Question

2. Assume that country S and T hire 2,000 unit of labour. Each country use 50% from the labour for production of agriculture goods (A) and manufacturing goods (M). Total production as shown in the following table:

Country/Goods(million unit)

Good A

Good M

Country S

100

400

Country T

200

500

Based on the above information:

a) Determine and explain the goods that will be produced by each country using the:

i. absolute advantage

ii. comparative advantage

b) Assume that both countries agree to trade after specialization in production by using a comparative advantage. Ratio of exchange is 1A: 40M. After trade country S will use 100 unit of good A. Using this information show in the table the effect after trade for the consumption of good A and M in country S and T.

c) i. Determine the range of exchange in terms of good M for per unit good A.

ii. Determine and explain ratio of exchange good A and M the only profitable for country T.

Answer 1

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